2021 (5) TMI 639 - HC - Income Tax

Assessment order violated natural justice; Court grants interim relief.

The court found that the assessment order was passed without considering the petitioner's response to the show cause notice, which violated natural ... Non-compliance with principles of natural justice - Assessment finalised without considering response to show cause notice - Show cause notice under Section 144C of the Income-tax Act - Opportunity of hearing - Draft assessment order - Interim relief pending disposalNon-compliance with principles of natural justice - Assessment finalised without considering response to show cause notice - Show cause notice under Section 144C of the Income-tax Act - Opportunity of hearing - Draft assessment order - Whether the assessment order at Ext.P7 suffers from non-compliance with principles of natural justice by not considering the petitioner's reply to the show cause notice issued under Section 144C. - HELD THAT: - The record shows that a show cause notice under Section 144C accompanied by a draft assessment order was issued on 18.03.2021 giving time until 22.03.2021. The petitioner sought an extension to 27.03.2021 and submitted a substantive reply on 23.03.2021. The assessment order dated 23.03.2021 records that no response was received and proceeds to finalise the assessment without recording consideration of the reply filed on 23.03.2021. Given that the respondent itself chose the procedure under Section 144C and issued the show cause notice with a draft order, the failure to consider the reply tendered by the petitioner before passing the final assessment prima facie demonstrates perversity and non-compliance with the principles of natural justice. The contention that no show cause was necessary cannot be accepted at this stage because the respondent did issue the show cause notice and thus was obliged to consider any response tendered in accordance with fair hearing requirements.Petition admitted; prima facie finding of non-compliance with principles of natural justice and interim relief granted as prayed until final disposal of the petition.Final Conclusion: The High Court admitted the petition, recorded a prima facie finding that the assessment order was passed without considering the petitioner's reply to the show cause notice thereby violating principles of natural justice, and granted the interim relief sought until the petition is finally disposed of. Issues:1. Compliance with the principles of natural justice in the issuance of show cause notice and passing of the assessment order.Analysis:The petitioner, through their counsel, highlighted the show cause notice at Ext.P4, issued in accordance with Section 144C of the Income Tax Act, 1961, accompanied by a draft assessment order. The petitioner requested additional time to respond, citing the limited four-day period granted. Despite submitting a reply to the show cause notice at Ext.P6 on 23.03.2021, the assessment was finalized based on Ext.P7, which claimed the petitioner had not responded by the required date. The petitioner argued that the assessment order was passed without considering their response, alleging a violation of natural justice principles.The Standing Counsel for the respondent contended that issuing a show cause notice was unnecessary as per Section 144C of the Income Tax Act, asserting that adequate hearing opportunities were provided to the petitioner. However, the court observed discrepancies in the process. The impugned order at Ext.P7 indicated that while initial notices were issued under Section 142(1) on 04.02.2021, the first notice under Section 144C was sent on 18.03.2021, granting only four days to respond. The petitioner's reply at Ext.P6, dated 23.03.2021, was disregarded in the assessment order, which incorrectly stated non-receipt of a response to Ext.P4. The court found the respondent's argument regarding the show cause notice's necessity unconvincing, deeming the order flawed and non-compliant with natural justice principles.Given the above analysis, the court refused the respondent's argument against the show cause notice's requirement and acknowledged the potential violation of natural justice principles in the assessment process. Consequently, the court admitted the petition and granted interim relief until its final disposal.